Instantaneous Volatility Seasonality of High-Frequency Markets in Directional-Change Intrinsic Time

• Main Authors: Vladimir Petrov, Anton Golub, Richard Olsen
• Format: Article
• Language: English
• Published: MDPI AG 2019-04-01
• Series: Journal of Risk and Financial Management
• Subjects: instantaneous volatility; directional-change; seasonality; forex; bitcoin; S& P500; risk management; drawdown
• Online Access: https://www.mdpi.com/1911-8074/12/2/54

We propose a novel intraday instantaneous volatility measure which utilises sequences of drawdowns and drawups non-equidistantly spaced in physical time as indicators of high-frequency activity of financial markets. The sequences are re-expressed in terms of directional-change intrinsic time which ticks only when the price curve changes the direction of its trend by a given relative value. We employ the proposed measure to uncover weekly volatility seasonality patterns of three Forex and one Bitcoin exchange rates, as well as a stock market index. We demonstrate the long memory of instantaneous volatility computed in directional-change intrinsic time. The provided volatility estimation method can be adapted as a universal multiscale risk-management tool independent of the discreteness and the type of analysed high-frequency data.